ISLAMABAD: Pakistan’s international trade has been severely disrupted due to the widespread lockdown as the country’s exports fell 54% to below $1 billion last month, underscoring the need for more accommodative economic policies to revive economy.
The disruption also affected Pakistan’s imports, which dropped 34.5% to $3.1 billion in April over the same month of last fiscal year, resulting in nearly one-fifth reduction in trade deficit to $2.1 billion, the Pakistan Bureau of Statistics (PBS) reported on Tuesday.
Exports are falling at a rapid pace than imports, which carry implications for the country’s external sector.
Overall, Pakistan booked a trade deficit of $19.5 billion in first 10 months (Jul-Apr) of current fiscal year 2019-20, down 25.7% or $6.73 billion compared to the same period of last year.
Total exports decreased 3.9% to $18.4 billion in Jul-Apr of the current fiscal year, according to the national data collecting agency. In absolute terms, exports decreased $752 million from July through April. Imports during the period dropped 16.5% to $37.9 billion. In absolute terms, imports contracted $7.5 billion, which provided some relief to the government.
Compared to April last year, exports decreased 54.2% to just $957 million in April 2020, a net reduction of $1.13 billion. In April 2020, imports fell to $3.1 billion compared to $4.7 billion in the same month of last year, which showed a contraction of over 34.5% or $1.62 billion.
The trade deficit in April contracted 18.8% to $2.1 billion over the same month of previous year due to import compression and massive squeeze in exports.
Pakistan’s major trading partners are going through a phase of almost complete lockdown to stop the spread of the deadly pandemic. Dubbed as the “Great Lockdown” by the International Monetary Fund (IMF), the global lender expects no immediate recovery in international trade.
The increasing trade tensions between China and the United States may further adversely affect global trade.
The situation warrants accommodative fiscal and monetary policies to help local businesses. However, initial vibes coming from the Q-block, the seat of the finance ministry, are not very encouraging.
The finance ministry seems to be in the mood of adhering to targets agreed with the IMF for next fiscal year 2020-21.
The planning ministry also expects a sharp slowdown in international trade activities. Exports could potentially go down by up to 10% in dollar terms in the fourth quarter (Apr-Jun).
There will be a sharp slowdown in imports from 35-60% depending on severity of the crisis, according to an assessment of the Ministry of Planning and Development.
“The impact of trade contraction only on GDP (gross domestic product) could be up to 4.6% if combined imports and exports go down by 20%,” said the Ministry of Planning’s assessment.
Preliminary estimates show in case of a 2% decline in imports and no drop in exports, the fourth-quarter GDP would shrink 0.3%. If both exports and imports decline 10% each, the fourth-quarter GDP would take a hit of 2.3%.
Similarly, a 20% decline in imports and exports in the fourth quarter would cause a loss of 4.7% of GDP.
In a moderate scenario where private offices and most shops are closed, but essential shops are open, the government has worked out that 12.3 million people will become jobless and in case of a complete shutdown, the government has assessed that 18.53 million people or 30% of the labour force will be unemployed.
Prime Minister Imran Khan is expected to make a decision this week on gradually easing restrictions on businesses from next week. Almost half of the businesses are closed and activities in major urban centres remain largely suspended.
PBS reported on Tuesday that on a month-on-month basis, exports fell 47.2% in April over March while imports contracted 6.8%. On a month-on-month basis, trade deficit widened 42% due to a massive reduction in exports.
Compared with only $228 million reduction in imports, the exports contracted $857 million last month over March.
Under the government’s Rs1.2-trillion stimulus package announced by the prime minister on March 27, the government had promised the release of Rs157 billion in tax refunds. However, the process remains painstakingly slow.
Published in The Express Tribune, May 6th, 2020.